The rotation back into big-cap technology stocks looks to continue for the third day. Early indications are for a positive open in the Nasdaq 100 (QQQ) but it is the DJIA that is leading due to a solid earnings report from Nike (NKE) . The House passed a short-term spending bill that will keep the federal government funded through December 11 and further testimony will be coming this morning from Fed Chair Jerome Powell.
Tesla (TSLA) is taking some of the steam out of the technology bounce as its 'Battery Day' is producing a 'sell the news' reaction. Growth expectations were high and Elon Musk failed to meet them. The bounce in the FATMAAN names is looking limited in the early going. Traders will be watching these names carefully to see if the move over the last two days is just a dead cat bounce. The Nasdaq 100 ETF is running into resistance at the 50-day simple moving average at this point and there is formidable overhead resistance ahead.
For a few weeks, stock pickers were enjoying a very strong run as money rotated out of the narrow big-cap technology stocks and into a variety of secondary names. Groups like biotechnology, SPACs, EVs, and select small caps have done well but that rotation has faltered the last couple days. SPACs suffered some of their worst action in a while on Tuesday and many biotechnology names struggled as well.
There is still some aggressive rotation taking place under the surface of the market but the problem is that it is now occurring in a choppier fashion. The FATMAAN names regained their footing and that hurt the broader market but it will be extremely challenging for them to produce a V-shaped bounce.
After the correction in big-cap tech and the rotation into lagging secondary stocks, the character of the market is confused and we have to watch for new themes and leadership to develop. Trading shifted starting on Monday and is not yet clear what theme may be emerging.
My game plan is to stay focused on the action in individual stocks and to watch for new sector leadership to develop. I'm not at all confident that the FATMAAN names are going to lead again and it looks like SPACs and EVs are due for a rest. The good news is that there is still money looking for a place to go but it appears to be uncertain about where.
The DJIA is the bright spot this morning but the bounce in the Nasdaq 100 ETF is looking tepid.